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By Yin Wilczek
April 22 — In a blistering report, two nongovernmental organizations April 22 charged that more than three-quarters of U.S. companies failed to meet their conflict minerals reporting obligations.
Among other problems, most companies limited their due diligence efforts to their direct suppliers and did not do enough to contact the smelters and refiners that process the minerals in their products, the NGOs said in the report.
Moreover, few companies disclosed any example of risk in their supply chains, the report found.
The report, “Digging for Transparency,” was issued by Global Witness and Amnesty International. It analyzed 100 conflict minerals disclosures filed in 2014 by U.S. companies—including Apple Inc. and Boeing Co.—under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
It is alarming that “most companies seem to prefer business-as-usual to genuinely addressing the risk that their mineral purchases bankroll armed groups overseas,” Global Witness Assistant Policy Advisor Carly Oboth said in a release. If the companies had used the resources they expended on fighting Section 1502 to properly investigate and report on their supply chains, “their customers would be more confident their goods were conflict free.”
Section 1502 requires U.S. companies to disclose their use of tantalum, tin, gold or tungsten—the so-called “conflict minerals”—from the Democratic Republic of Congo and surrounding areas. Part of a Securities and Exchange Commission rule to implement the provision is being litigated in the U.S. Court of Appeals for the District of Columbia Circuit.
The disclosures submitted by 1,321 companies in 2014 were the first-ever filed under the law.
In a prior discussion with Bloomberg BNA, Oboth and Patricia Jurewicz of the Responsible Sourcing Network—another NGO active in this space—spoke about what improvements they would like to see for the next filings, due June 1. They also suggested that the SEC should penalize companies that file incomplete disclosures or fail to meet minimum requirements.
In other findings, the Global Witness/Amnesty International report stated that from its sample of 100 companies that filed in 2014:
• only 21 percent met minimum requirements;
• only 15 percent of companies disclosed that they contacted, or tried to contact, their smelters and refiners; and
• more than half did not report to senior management when a risk was identified in their supply chains.
The report listed several criteria upon which the filings were assessed, including that companies show they have adopted and are committed to a conflict minerals policy.
However, Michael Hermsen, a Chicago-based partner at Mayer Brown LLP, told BBNA it was “unrealistic” to expect companies to be perfect in their inaugural disclosures. He also queried whether Global Witness and Amnesty International “will ever be satisfied with the disclosures that companies provide since it appears that all of the disclosures they are seeking are not required either by Section 1502 or the SEC’s rules.”
Most companies made a good faith effort to comply with the requirements in 2014 and “I expect that we will be seeing improvements in compliance in the second year,” Hermsen said.
He also noted that it took more than a year for some companies—particularly those with complex structures—to put all of the necessary processes in place and to do all of the due diligence necessary under the SEC's requirements. The commission itself recognized this by allowing for a two-year phase-in before requiring full compliance with its regulations, he said.
“The SEC’s rules intentionally left a lot of flexibility to companies in determining how to comply with the process requirements and how to structure their disclosures, and we saw a lot of that flexibility in the first-year disclosures,” Hermsen continued. “But companies are taking a look at those first-year disclosures, particularly those of their competitors, as well as refining their processes to reflect the knowledge they gained going through the process last year, in finalizing their disclosures for the upcoming reports that will be filed with the SEC.”
To contact the reporter on this story: Yin Wilczek in Washington at email@example.com
To contact the editor responsible for this story: Kristyn Hyland at firstname.lastname@example.org
The report is available at https://www.globalwitness.org/campaigns/democratic-republic-congo/digging-transparency/.
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